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I won’t merge Invesco UK Strategic Income with flagship funds, says Barnett

29 July 2014

Many commentators expect the firm to merge the FE Alpha Manager’s three equity income funds, but Barnett says he has absolutely no intention of doing so.

By Joshua Ausden,

Editor, FE Trustnet

The five crown-rated, sector-leading Invesco Perpetual UK Strategic Income fund will remain as a stand-alone product, according to manager Mark Barnett, who says he has no plans to merge it with the much larger Invesco Perpetual High Income and Income portfolios.

Barnett (pictured) took over the firm’s flagship funds from exiting manager Neil Woodford in March of this year, and has run Strategic since back in 2006. While the £436m fund has outperformed its larger counterparts in recent years, thanks in part to its greater mid cap exposure, there is a great deal of crossover between the three products.

A number of experts say they expect Barnett to merge the smaller fund into Income and High Income, to make the day-to-day running of the portfolios more manageable.

ALT_TAG However, when asked in an exclusive interview with FE Trustnet whether he would do this, he said: “It’s not going to happen. The funds, although in the same universe, have different client bases. There is not a need or a desire from my perspective for this to happen. They pay dividends at different times of the year, and there are other differences.”

“I don’t see the need to merge them.”

While Invesco Perpetual UK Strategic and Invesco Perpetual High Income had a high level of crossover even before Barnett took over the latter two, the difference in performance over the past five years has been significant.

Performance of funds vs sector and index over 5yrs

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Source: FE Analytics

FE data shows that Strategic is ahead by almost 20 percentage points over the past five years, which is enough to put it in the top quartile of its IMA UK All Companies sector over the period. High Income has outperformed its sector and the All Share over the period, but it is only second quartile.

Strategic is also ahead over one and three years, though High Income has the edge over the last decade.

Barnett says that the funds are likely to remain different for the foreseeable future.

“Size will always be the big differentiator,” he said.

“It will be a long time before Strategic gets close to Income in terms of size, let alone High Income. There are stocks in Strategic that I can’t hold in any great degree in the larger funds, though there are some in the larger funds that I can’t hold in Strategic because we already own 29 per cent of the company.”


He adds that although Strategic is less concentrated in its top-10, it is likely to have a shorter list of companies overall. Invesco Perpetual High Income has a number of small positions in unquoted micro-caps that Woodford initially bought. Barnett says he is likely to hold onto a number of these, though he will not be adding them to his Strategic portfolio.

“Strategic has 60 to 80 stocks, while the other two have a lot more than that,” said Barnett. “I don’t want the same list of stocks.”

High Income has 124 stocks at the time of writing, while Strategic has 77.

The two funds do have a lot of overlap at the top of the portfolio, though Strategic’s greater flexibility means that Barnett is able to take punchier positions in smaller companies such as Babcock. BP also makes it into the smaller fund's top-10, with High Income preferring Rolls Royce.

Glaxo and Astra remain significant positions, but have smaller positions in Strategic, even though the manager has brought down exposure to both in Income and High Income in recent months.

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Source: FE Analytics

Strategic is significantly less concentrated at the top of the portfolio, with the top-10 accounting for 34.94 per cent of assets, compared with just over 50 per cent for High Income. This allows Strategic to take larger positions in mid caps further down in the portfolio.

Invesco Perpetual confirmed that the Strategic fund has 25.5 per cent in FTSE 250 stocks – significantly more than the two flagship funds. Barnett explained in an article earlier today that he has brought up the FTSE 250 exposure in the High Income fund to 14.8 per cent and Income to 16.5 per cent.

Barnett says that investors who are wary about mid caps in the short-term in light of their very strong run in recent years may be better suited to his Income and High Income funds. He adds that investors may prefer Strategic because he has been running it for longer.

“Strategic is one I’ve been running for the last eight years or so, while I’ve only recently taken over High Income and Income,” he said.

As the manager mentioned earlier, the three funds pay dividends at different times of year, meaning that if they did merge, it would be a contentious issue for existing investors who rely on them for income.

High Income pays dividends twice a year, in January and July, while Income pays in May and November. Strategic also pays in May and November.

Holders of Invesco Perpetual UK Strategic Income have welcomed the news. Andrew Alexander, director of Three Counties and head of investments, said: “It’s a very good thing to hear. I like the fact that Strategic is off the radar.”

“The Income and High Income funds are massively high profile and very large. They are default options for a number of insurance and pension schemes.”

“Strategic is much more flexible. I view it as the true expression of Barnett’s best ideas. I don’t want the fund to be diluted – though perhaps that’s a strong word – by the assets in High Income and Income.”

“It’s fantastic news. I’m very pleased,” he added.

John Blowers, head of FE Trustnet Direct, was similarly upbeat: “It’s great that investors will have more choice,” he said. “Barnett has a strong team behind him and has more than enough resources to run three portfolios – especially as the other two are run together.”

“Strategic is Barnett’s baby and has a loyal pool of investors who like the fact it’s smaller and nimbler.”


As well as running three open-ended funds, Barnett runs four income-focused UK trusts: Perpetual Income & Growth, Keystone, Invesco Perpetual Select UK Equity and Edinburgh. He took over the last of these from Woodford in January this year.

A number of industry commentators, including Numis’s Charles Cade, have called for consolidation in these trusts – particularly between Perpetual Income & Growth and Keystone, which have very similar portfolios.

Barnett was less clear about his own views on merging the trusts, insisting that any changes would be out of his hands.

“It’s a board decision. If it were to happen, there would have to be pressure for it from shareholders. Whether or not I desire it, I can’t affect the decision,” he said.

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